Foreign Direct Investment and Environmental Taxes

A. De Santis Roberto and Frank Stähler
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A. De Santis Roberto: European Central Bank,Frankfurt, Germany

German Economic Review, 2009, vol. 10, issue 1, 115-135

Abstract: This paper studies the effect of foreign direct investment (FDI) on environmental policy stringency in a two-country model with trade costs, where FDI could be unilateral and bilateral and both governments address local pollution through environmental taxes. We show that FDI does not give rise to ecological dumping because the host country has an incentive to shift rents away from the source country toward the host country. Environmental policy strategies and welfare effects are studied under the assumption that parameter values support FDI to be profitable.

Keywords: Foreign direct investment; environmental taxes; multinational enterprises; plant location (search for similar items in EconPapers)
Date: 2009
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Journal Article: Foreign Direct Investment and Environmental Taxes (2009)
Working Paper: Foreign direct investment and environmental taxes (2008)
Working Paper: Foreign Direct Investment and Environmental Taxes (2000)
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DOI: 10.1111/j.1468-0475.2008.00444.x

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